2024-Q4-TCX-results-management-remarks-transcript-V2

Introduction [Monica Webb, Vice President, Investor Relations]

Welcome to Tucows’ fourth quarter 2024 management commentary. We have prerecorded prepared remarks regarding the quarter and outlook for the Company. A Tucows-generated transcript of these remarks, with relevant links, is also available on the Company’s website. We will begin with opening remarks from Elliot Noss, President and CEO of Tucows and Ting, followed by business remarks from Dave Woroch, CEO of Tucows Domains; Justin Reilly, CEO of Wavelo; Elliot Noss on Ting, Ivan Ivanov, Tucows' CFO, who will discuss our financial results in detail, and finish with closing remarks from Elliot Noss.

In lieu of a live question-and-answer period following these remarks, shareholders, analysts and prospective investors are invited to submit questions to Tucows’ management. Please submit questions via email to ir@tucows.com until Thursday, February 20. Management will either address your questions directly or provide a recorded audio response and transcript that will be posted to the Tucows website on Tuesday, March 4, at approximately 5 p.m. Eastern time.

We would also like to advise that the updated Tucows Quarterly KPI Summary, which provides key metrics for all of our businesses for the last eight quarters, as well as for full years 2022, 2023 and 2024—and also includes historical financial results—is available in the Investors section of the website. The updated Ting Build Scorecard and investor presentation are also available.

Now for management’s prepared remarks:

On Thursday, February 13, Tucows issued a news release reporting its financial results for the fourth quarter and year ended December 31, 2024. Please note that an amended news release was issued on March 13 to reflect a subsequent event that impacted certain of our fourth quarter and full year 2024 financial results. The amended news release, financial statements and other impacted reports have been updated on the Company’s website at www.tucows.com under the Investors’ section.

Management Remarks [Elliot Noss, President and Chief Executive Officer]

Introduction

Thanks, Monica.

We ended the year with strong momentum across all of our businesses. 2024 marked our fourth consecutive year of consolidated revenue growth, 19% year-over-year gross profit expansion, and more than doubling our annual Adjusted EBITDA to a touch under $35 million. Excluding Ting, we had Adjusted EBITDA of $57.4 million out the top end of our guidance. The $34.9 million in EBITDA represented a 126% increase from $15.5 million in 2023. Most importantly, we have moved Ting to a sustainable cost structure, which generated slightly positive Adjusted EBITDA for the month of December.

We repaid a further $2.0 million on the balance of the syndicated bank loan in Q4, which takes us to $16.5 million paid down in 2024.

And as we do every year, we’ve authorized a buy back program for 2025 for up to $40 million in Tucows stock. A reminder that we do this whether or not we can foresee using it at the time we do the authorization.

I’ll now turn over to Dave Woroch, CEO of Tucows Domains.

Tucows Domains [Dave Woroch, Chief Executive Officer, Tucows Domains]

Thanks, Elliot.

As we close out the year, I’m pleased to report that Tucows Domains grew revenue, gross margin and Adjusted EBITDA in each successive quarter of 2024. This follows a similar performance in 2023.

February also marks the 25th anniversary of Tucows’ domains business, from our launch of OpenSRS in early 2000. Today our core business remains strong and resilient, built over many years and with a long-term strategic view. From the beginning we prioritized strong customer relationships and disciplined cost management to drive sustainable profitability.

Now turning to the recent quarter, revenue for Domain Services for Q4 was $65.7 million, up 6% from $61.8 million for the same quarter last year, and up 5% for the full year 2024 compared to 2023. Gross margin was $20.3 million in Q4, up 8% from the same quarter last year, and up 7% for the full year. And Domain Services’ Adjusted EBITDA was $11.6 million in the fourth quarter, up 8% from Q4 of last year, and up 4% for the full year.

Our domains under management held steady, and were flat both year over year and quarter over quarter, while transactions were down just under 1% from Q4 of 2023. Both measures represent solid performance within our industry. And as I’ve said before, domain registration is a mature business, and revenue growth for us is going to come from adjacent revenue opportunities, like our registry services business, as well as new products we’re bringing to market.

Looking at the results from the segments of our business; in our Wholesale channel, revenue for Q4 was $56 million, up 7% compared to $52.5 million for Q4 of last year, and gross margin was $15 million, up 10% from $13.6 million from Q4 of 2023. Within the Wholesale channel, Domain Services’ gross margin in Q4 of this year was unchanged from last year at $9.9 million. Value-Added Services’ gross margin for Q4 of this year was up 36% year over year to $5 million, with the increase driven primarily by strong, non-recurring sales from our expiry stream and to a lesser extent from our hosted email service.

In our Retail channel, revenue for Q4 was $9.6 million, up 3% from $9.3 million in Q4 of last year. Retail gross margin for the fourth quarter was also up 3% year over year.

Our combined overall renewal rate, at 76%, in both Q4 and for the full year, across all Tucows Domains brands, remains within our historical range and above the industry average.

Our results for Q4 and the full year 2024 show a healthy core business in a mature industry. We’ll continue to focus on running that business efficiently.

Further to the growth opportunities, earlier this year, in partnership with Amazon’s AWS business, we previewed a cloud-based hosting solution, designed to meet the needs of the thousands of smaller resellers within our distribution channel. This solution enables digital agencies, web designers and developers, and smaller hosting providers to leverage cloud-based hosting without developing and building out the integration to AWS themselves.

Building on our ongoing success in registry services, we continue to leverage the technology acquired through the UNR acquisition to grow customers and revenue. As a testament to our capabilities, Tucows Domains was recently selected to be the technical services provider for the .IN country code domain, operated by the National Internet Exchange of India. Our teams are closely collaborating and we are establishing a dedicated team in India to support this initiative. As the project progresses, we anticipate migrating approximately 4 million domains onto our platform later this year, expanding our market presence and leadership in registry services.

Reflecting on the past 25 years of Tucows Domains, we’ve achieved many milestones and built a healthy business. I’m proud of how our core business continues to reliably perform. Looking ahead, our focus on new growth initiatives is what excites us most. As the digital landscape evolves, we’re where we have always been, at the forefront and ready to deliver solutions for the future of the internet.

Now, over to Justin Reilly, CEO of Wavelo.

Wavelo [Justin Reilly, Chief Executive Officer, Wavelo]

Thanks, Dave.

As I reflect on Wavelo’s third year as an independent business, I’m pleased with our achievements. Fiscal 2024 marks our best year yet across all key performance indicators. Wavelo grew revenue, gross margin, Adjusted EBITDA—and new customer logos, all while renewing its inaugural customer in Echostar’s Boost Mobile.

Revenue for the full year 2024 was $39.9 million, up from $38.7 million in 2023. Gross margin was $38.6 million, up from $36 million last year. Adjusted EBITDA was $13.8 million, well outperforming our guidance of $8 to $10 million, and up from $10.6 million last year.

Our performance in 2024 tells a story of a business that is learning to nicely balance growth and profitability, while delivering for its existing customers. I’ll remind investors that these are the places where we can facilitate the most change for telecom customers, as the inefficiencies are frankly hard to even quantify.

As we look to 2025, we enter the year with a mostly hired go-to-market team that is onboarded and hitting the ground running. We expect to grow the topline more than we did in 2024, through a mix of existing and new customer revenue. That said, I want to be clear that we'll be doing so with a small but mighty sales and marketing team that represents a much smaller spend as a percentage of revenue than our competitors.

As we look to the macro in ‘25, every industry will have to contend with the generational disruption of AI. At a global market size of $3.1 trillion, telecom is the leading candidate for a historical refactoring. The most valuable data on the planet is in what products and services customers use, what they pay for those services, and what behaviors might indicate that they are about to make a change to what they use or what they are willing to pay.

Ting [Elliot Noss, President and Chief Executive Officer, Tucows and Ting]

Thanks, Justin.

As we close out 2024, Ting’s long term shape has settled. We are an ISP.

In Q4, Ting reported $15.7 million in revenue, a 14% increase year over year. The growth was driven by a 17% year-over-year increase in subscribers, taking us to 50,700 subscribers from 43,400 in Q4 of last year.

Ting Gross Margin increased 40% year over year to $11.0 million in Q4, as we gained efficiencies from no longer carrying excess construction capacity. Ting’s Adjusted EBITDA continues to trend in a positive direction with a loss of only $1.5 million in Q4 down from $12.3 million in Q4 of 2023.

The work from here is to focus on penetration and then, mostly starting later this year, ARPU. We are in the process of rebuilding the marketing function, which can most benefit from AI augmentation.

Financial Results [Ivan Ivanov, Chief Financial Officer]

Thank you Elliot, and thank you everyone for joining us today.

As we close out the fourth quarter, our focus remains on growth, efficiency, and financial discipline. The progress we’ve made is reflected in our strong topline performance and a significant increase in Adjusted EBITDA.

Q4 Financial Overview

In Q4, we delivered $93.1 million in total revenue, a 7.1% increase year over year. Gross profit was up 19% to $21.2 million, as we maintained disciplined cost controls. Adjusted EBITDA grew 403% to $12.8 million—a combination of both our revenue growth and operational improvements.

At the net income level, we reported a net loss of $42.5 million, primarily due to a one-time impairment and restructuring charge of $25.4 million related to Ting’s capital efficiency plan, as well as other impairment and transition costs of $1.3 million.

Business Performance by Segment

Tucows Domains:

Starting with Tucows Domains; Revenue grew 6.2% year over year to $65.7 million, driven by expiry sales and continued strength in the core business.

Ting:

Ting has been a major focus area, and we’re seeing the results of our efforts to optimize capital efficiency while continuing to scale in our existing footprint as well as partner markets.

Wavelo:

Wavelo continues to deliver results as it focuses on building its growth funnel.

Corporate:

Corporate revenue remained steady at $1.8 million, and Adjusted EBITDA declined to negative $1.1 million.

Key Financial Metrics & Capital Efficiency

We ended the quarter with $56.9 million in cash and cash equivalents. And on a net basis, our syndicated debt stands at $192.5 million, resulting in a leverage ratio of 3.26x.

Ting Capital Efficiency Plan & Cost Management

A major initiative this quarter was capital efficiency at Ting, which resulted in a $28.2 million one-time restructuring and impairment charge.

Closing Remarks [Elliot Noss, President and Chief Executive Officer]

Thanks Ivan.

First, Adjusted EBITDA guidance for TCX for 2025. The consolidated guidance range is in and around $56 million, up 75% over 2024, before a one-time $9 million charge in our Corporate segment.

With that, thank you.